Sirius & XM Any Closer? (SIRI, XMSR)

CNBC just had some back to back coverage regarding Sirius Satellite Radio (NASDAQ:SIRI) and possibly of XM Satellite Radio (NASDAQ:XMSR).  We’ve been closely monitoring this merger and it just seems that at least the chances of a "bias toward approval" have increased at least a bit.

David Faber got to interview Sirius’ CEO Mel Karmazin.  Karmazin noted to Faber that both Sirius and XM have each sent in 6 million pages of documents to the regulatory agencies and have communicated with the FCC.  Karmazin said he thinks the chances should be 100% that the deal closes in his opinion, but he wouldn’t give any formal percentage chances that the merger would really pass regulatory scrutiny.  The backup plan is sort of a business as usual if the deal does get blocked.  The truth is there wasn’t really anything new in the interview.

Shortly after the David Faber interview, Jim Cramer came on CNBC (with a slur from root canals) discussing this and said he thinks the companies will get the deal done and that could get it to a $5.00 stock.

We’ll know fairly soon if this will occur or not by the end of the year.  We have covered this ourselves with recent notes about the chances getting higher that the deal could close.  One thing is for sure though: If the DOJ blocks this merger, XM and Sirius are both likely to announce substantially higher monthly prices to remain viable.  We recently noted how it sure sounded like the XM group was preparing to operate as its its own entity. 

We have reviewed this merger on and off, but have not yet made any formal calls for our Special Situation Investing Newsletter subscribers.  It is our opinion that the deal SHOULD be approved based upon other approvals, but ultimately this is at the mercy of too few key people that are deemed as being heavily under the influence of terrestrial radio lobbying to be able to make the "SHOULD" status become a "WILL" status.  The government has rubber-stamped just about every single "inside the US merger" and the influence from the radio industry is what has been holding this up; and the DOJ recently requested more data.  We have been reviewing Sirius and XM for the subscriber newsletter but have yet to make a determination we’d be willing to sign our name to.  An analyst opinion is one thing, and a decision from the government is another. 

Shares were up 1% at $3.58 before the call, but Sirius shares are now up 2% at $3.62 on over 33 million shares today after the two segments.

Jon C. Ogg
October 15, 2007